Valuation Clause

Posted in Finance, Accounting and Economics Terms, Total Reads: 347

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Definition: Valuation Clause

Valuation clause is a mutual understanding reached between the insurance policy holder and the insurance firm / person, where in the scenario of a loss, there is an assured amount of the value which will be given to the beneficiary.

The valuation clause sets the amount of money which the beneficiary would get after getting his/her insurance done. Depending upon the insurance type, the money would be paid after all the prerequisite checks are performed as per the guidelines and clause points.

Valuation clauses are mostly based on:

- Replacement cost: it is the cost for repairing or to replace property making the use of the similar level of quality as is there in the original property.

- Agreed value: a good market value to which the insurer and insured have consent.

- Actual cash value: it is the cost for repairing or replacing the property, less any kind of depreciation.

- Stated amount: it is the highest value of any insured item.

For each type of policy and insurance types, there can be varying clauses. Hence, it is critical for a policy holder to be thorough with the documentation.